Why Price Transparency (or the Lack Thereof) Is Killing Hollywood

Plus: An ‘Impossible’ assignment!

You have meddled with primal forces of nature, Netflix, and I won’t have it!

If you want to reach an understanding about the state of modern Hollywood, the New Yorker and New York magazines have two important pieces that will help you get there.

First up is Michael Schulman’s deep dive into the rise of the Marvel Cinematic Universe. There’s not a ton new here for folks who follow this stuff regularly—actors like Gwyneth Paltrow don’t even know what Marvel movies they’ve been in! Audiences have been conditioned to expect nothing but spectacle on the big screen!—but it’s useful to see it all laid out in a single place, at length, featuring interviews with folks involved in the making of these movies.

The way in which this essay explains the state of modern Hollywood is pretty straightforward: Marvel and Disney have created a self-perpetuating money machine, the interconnectedness of which is its own reward. People feel compelled to go to the movies and watch the TV shows in order to not only learn what will happen in the future with these characters but also to pay off past investments in time and money. The MCU is often compared to TV, but it’s a TV show that has generated nearly $30 billion in box office receipts. That’s why every studio on planet Earth with the financial means and an underlying intellectual property is trying to emulate the MCU model. The price transparency here is very clear in the form of box office receipts: interconnectedness and self-perpetuating franchises are absolute goldmines. In addition to tickets sold, God only knows how much the studio is making in Disney+ subs from folks desperate for hashtag-content like Ms. Marvel and She-Hulk.

Ah, it’s that “God only knows” that brings us to the second feature you need to read to understand modern Hollywood. Writing in New York magazine, Lane Brown and Josef Adalian have a feature subtitled, in part, “TV’s streaming model is broken. It’s also not going away.”

The ways in which streaming is broken—for the creators, for the consumers, and for the companies themselves—are myriad, but (in my humble opinion) they all come down to the same basic thing: a complete lack of value transparency.

Here’s one way to think of it. Once upon a time, a TV show was made for a broadcast network. The way that show made money was by the network selling advertisements that aired during the episode. The more people who watched, the more valuable the ad space was. As a result of the value generated by each individual airing, writers, directors, and actors were paid by airings. A new episode got you a check; the first broadcast reruns got you more; and if it sold in syndication, you got more checks still. The checks varied in size depending on popularity, but everyone more or less understood whence the value came.

In the age of streaming, ratings matter—as the Entertainment Strategy Guy loves to say, streaming is still a hits-driven business—but they matter much less. And they matter less because it’s hard to disaggregate who is subscribing for which shows. This is one reason why artists are frustrated by the residual situation on streaming: when they make a monster hit these days they don’t necessarily get rewarded for them until it’s time to negotiate the next deal. The money is all paid upfront, with bonuses if it lives on the platform for a certain number of years. It’s also a reason why streamers backload pay by promising big bonuses when seasons three and four roll around: they know full well there’s a very high percentage chance the show’s never making it to season three since almost no one drops the service because any individual show got canceled. The marginal value of a third season of a middling show is, in all likelihood, negative for a company like Netflix.

Still, the studios and the streamers are not exactly making money either, as almost all of them have been spending far more than they bring in order to capture subscribers with rivers of content. The entire streaming industry exists at least in part because of the zero-interest-rate economy, which has subsidized both artists (in the sense that more shows were made than should have been, creating more jobs, inflating a bubble that’s likely to pop soon if it’s not already in the midst of popping) and, importantly, consumers. Derek Thompson wrote of the end of “the Millennial Lifestyle Subsidy” last year in a different context, but you can see it at play in the world of streaming as well. Netflix offered people the chance to immediately watch thousands upon thousands of films and TV shows in addition to creating brand-new movies and programs, and they did it all for the low-low price of $9.99 a month for years and years.

This conditioned consumers to believe they were owed the world of entertainment for one low price. But that conditioning was always built on a fallacy. They were getting something for not-quite-nothing. The actual cost of these things is much closer to what we have now: as much as $20 a month for Netflix, $20 a month for ad-free HBO Max, $120 a year for Disney+ (and another hundred-some if you want to get Hulu, more if you want to get Hulu without ads). Plus the expense of Paramount+ and Prime Video and everything else. We’re now getting a taste of what things should cost. But it’s still not what things actually cost. Which is why consumers are starting to see new ad tiers, constant price hikes, and cuts to libraries. And why they will see more such ads, hikes, and cuts.

I don’t feel pity for the studios and the streamers: They’re the ones who chose to chase Netflix’s billions and Wall Street payouts. But I am as bemused as Steven Soderbergh, who described the new model thusly to New York:

“The entire industry … has moved from a world of Newtonian economics into a world of quantum economics, where two things that seem to be in opposition can be true at the same time: You can have a massive hit on your platform, but it’s not actually doing anything to increase your platform’s revenue. It’s absolutely conceivable that the streaming subscription model is the crypto of the entertainment business.”

For all the issues with the Marvel Cinematic Universe—which I feel like I should say, for the record, I enjoy more often than I do not—at least it makes sense as a business model. Yes, that business model has inspired a lot of bad imitation, but: it makes sense! Things should make sense. However, the world only makes sense if you force it to. And we’ve blissfully lived in a world that makes no sense for the better part of a decade now. I don’t think people are going to like what the studios are going to be forced to do to make it make sense again.

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On today’s episode of Across the Movie Aisle, we discussed some of our favorite cliffhangers and why some movies pull it off better than others. The context, of course, is Spider-Man: Across the Spiderverse, which surprised (and annoyed!) some audiences by ending on a cliffhanger.

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Links:

This week I reviewed You Hurt My Feelings and Master Gardener; I liked the former more than the latter, but it’s nice to have the option to see a few movies for grownups in the hot summer months.

Brooks Barnes over at the NYT has some numbers from Universal about the money they’re making on PVOD. Not surprisingly, the biggest hits are family pictures as kids love nothing more than watching the same movie over and over again and parents love nothing more than getting their kids to shut up for 90 blessed minutes. We’re going to have him on The Bulwark Goes to Hollywood next Friday, so make sure to bone up ahead of time.

This Friday we have Arthur Smith, the chairman of the A. Smith Co. (the production house behind Hell’s Kitchen, American Ninja Warrior, and The Floor Is Lava, among other hit shows) and the author of Reach: Hard Lessons and Learned Truths From a Lifetime in Television. He’s been in the business for 40-some years so he’s seen it all, from the evolution from broadcast to cable/satellite to streaming. Needless to say, he has lots of insights about the state of the business. I hope you give it a listen this weekend.

Turns out you aren’t going deaf: dialogue on shows really is harder to hear these days. Why? Well, among other reasons, it’s another thing that AT&T ruined, turns out.

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Assigned Viewing: Mission: Impossible (Paramout+)

I’ve been rewatching some of these since the new one is coming out, and I have a theory about this film and the casting of Emilio Estevez, but I don’t want to say precisely what that theory is since I don’t want to spoil it just in case you’ve never seen the movie. Suffice to say, I think it’s the most important bit of casting in the series’ history. For reasons. Mysterious reasons. Maybe I’ll put the mysterious theory in the comments after this goes live so you can see if you agree with me.